Death Derivatives Must Be Stopped

In case you forgot: I told you so. Not just once but twice.

Derivatives are bad. Betting on bundles of stuff like life insurance policies and using retirement trust funds to do it is making retirees invest in interests that would profit by their deaths.

Keith Fitz-Gerald, the Chief Investment Strategist for Money Morning, in the October 12, 2011 edition, calls death derivatives the next global "black swan". He finally picked up on what I have been harping on for over 18 months.

Insurance companies should not be in the life and medical business. Life insurance policies that pay out when a person dies, have a liability for the insurance company at the time they have to pay the claim. They are required to keep reserves to pay claims and the longer a policy holder lives, the longer they have to keep money around and the less profit they make.

If an insured dies in an expected time, the company covers it. If it takes longer, that money is tied up until needed. Worse yet is that dropped policies can be rescued if someone invests (picks up premium payments) and plans on a return soon, ie a cancer patient or someone who statistically will not live past a certain point.

Banks pick up these policies, bundle them, make money on the transfer fees or speculating on possible return, so they add them to inventory.

The SEC asked one of these companies, Life Partners to describe how they managed to set a value on their product. Keep in mind that there is nothing tangible to back these bundles up other than the possibility that the insured will die sooner rather than later.

I think derivatives are gambling, a huge Ponzi scheme that will drag down the world economy, because there is nothing tangible to back them up.

See my posts of 5/14/11, 2/14/11 and the initial one about murder derivatives May 3, 2010.

And an afterthought, I imagine that some of the profits of these billions of unsecured dollars find their way to the bonuses of major bankers and enable their lavish life styles. This is not the way our Calvinest hard work ethics is supposed to work.

What ever happened to ethics? Shouldn't Wall Street's way of doing business reflect tangible things like selling a real product instead of gambling?

Maybe those Wall Street picketers are on to something.

Seniors rock.